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Wednesday, February 06, 2013

Where Was Paul Page?

Did I miss something? The government's case against John Bales and William Spencer ended this week without testimony of the key co-defendant, Indianapolis attorney Paul Page, who pleaded guilty last month to federal wire fraud charges and agreed to cooperate with the government's prosecution of Bales and Spencer, as well as ongoing investigations by the U.S. Attorney's Office in Indianapolis, which reportedly has former Marion Co. Prosecutor Carl Brizzi as one of its targets. After the defense offered several witnesses yesterday afternoon and this morning, the IBJ's Cory Schouten says the parties were to offer their closing statements in the case this afternoon before sending the case to the jury.

Page's testimony would have seemed critical. After all, according to his plea agreement, Bales solicited Page to act as a straw purchaser for a building in Elkhart that Bales' company, acting as the state's leasing agent, would in turn have the state lease from him for the state's Department of Child Services. According to Page, Bales set up the business entity Page used to buy the building, and Bales' Venture Real Estate fronted the money to the business on behalf of Page to secure a loan and mortgage from Huntington Bank to acquire the building, with the understanding the advanced funds would be repaid to Venture and the profits split between Page and Bales' Venture Real Estate after the building was resold. Page's plea agreement says the company he owned, L&BAB, kicked back more than $55,000 in development fees that were paid by the state to his firm to companies controlled by Bales, in addition to the nearly $110,000 Venture Real Estate earned in commissions and brokerage fees on the purchase of the building.

Page's plea agreement further claimed that Bales prepared and had him execute a backdated mortgage representing the more than $360,000 Bales fronted him to purchase the building more than a year after he acquired the Elkhart Building with a loan and mortgage he received from Huntington Bank that prohibited him from taking out a second mortgage on the real estate. Huntington Bank did not know that Bales had fronted Page the down payment required to secure the original loan, or that Bales had later secured his interest in the building by recording a second mortgage. Page later amended the operating agreement for L&BAB to make Carl Brizzi an equal co-owner, although he made no investment in the business in consideration for his ownership stake according to Page. E-mails between Spencer and Brizzi also discussed a possible ownership stake in a strip center owned by Venture at 49th & Pennsylvania Streets in Indianapolis around the same time Brizzi was made an equal partner in L&BAB.

The defendants' attorneys insist that their clients held no equity interest in the Elkhart Building, a contention contested by their company's own former controller, who testified that it had not been booked as a loan, and that there was no repayment schedule or other documents classifying it as a loan. According to the controller's testimony, the belated, backdated mortgage filing was made as an after thought to give the appearance Venture's interest in the building was truly no more than a loan secured by a mortgage. A commercial real estate broker from Fort Wayne, David Nugent, testified for the defense that Venture's second mortgage was a "shared-appreciation loan" and not an equity interest. A shared-appreciation mortgage, commonly referred to as a "SAM", is typically a mortgage-backed loan whereby the lender agrees to loan money to a borrower for a reduced rate of interest in consideration for receiving a fixed percentage of the appreciated value of the property when it is resold. The trial coverage doesn't specify the terms in the mortgage instrument to indicate whether the backdated mortgage recorded by Venture contained language reflecting a true SAM.

The IBJ's Cory Schouten discusses additional testimony offered by Nugent for the defense claiming that real estate brokers are permitted to represent both sides of a transaction without disclosure to all parties. "On cross-examination, Barrett read Nugent portions of the code of ethics for the National Association of Realtors, which appeared to contradict Nugent's claim that brokers can represent multiple parties at once on a deal," Schouten wrote. "Barrett said the code makes clear that brokers may not accept payment from multiple parties without disclosure; Nugent contended that a broker can be paid a sale commission, lease commission and development fee on a building because each of those transactions is separate." Really? I did not know that.

Schouten also reports on a retired IRS agent the defense found to make the case that Bales and Spencer stood no chance of gaining financially from the transaction. Marion Siara claimed that, in addition to a $50,000 payment Page pulled out of L&BAB for himself, he also withdrew another $93,700 for other family members and associates, including a $50,000 payment to his defense attorney, Robert Hammerle. Siara claimed that Venture would have lost about $25,000 if it managed to sell the building for $1.65 million. The government contended the building could be worth as much as $2,000,000 million after the state invested money in the improved build out for the DCS offices and signed a long-term lease worth at least $250,000 a year. Siara acknowledged under cross-examination by the government that defense counsel had not retained his services until December of last year, less than two months before the start of the trial.

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